Casablanca Re Ltd. (Series 2017-1)

This the first catastrophe bond transaction from Florida focused insurer Avatar Property and Casualty Insurance Company, with the target being a $100m source of fully-collateralized reinsurance protection through issuance of three tranches of Series 2017-1 cat bond notes via Cayman Islands special purpose vehicle Casablanca Re Ltd.

Casablanca Re Ltd., a newly formed Cayman Islands special purpose insurance vehicles, will issue three tranches of Series 2017-1 cat bond notes that will be sold to cat bond investors to collateralize reinsurance agreements between it and Avatar.

The three tranches of notes and underlying reinsurance agreements will provide Avatar with a fully-collateralized source of protection against losses from named storms striking the state of Florida across a three year term, with the protection on a per occurrence basis and each tranche having an indemnity trigger linked to Avatar’s losses.

A $55.15 million tranche of Class A notes will have an initial attachment probability of 1.13%, an initial expected loss of 0.8% and are being offered to cat bond investors with coupon price guidance of 3.25% to 4%.

A $21.7 million Class B tranche of notes have an attachment probability of 4.13%, an expected loss of 1.77% and price guidance in a range from 5% to 6%.

Finally, the riskiest tranche of notes are a $23.15 million Class C, with an attachment probability of 17.26%, an expected loss of 9.93% and are offered to investors with price guidance of 16% to 18%.

The three tranches of Casablanca Re 2017-1 cat bond notes will provide Avatar with a layered source of capital market reinsurance protection, wrapping around (so providing cover below, alongside and above) its FHCF coverage layer.

Update 1:

The indication from this pricing is that investors have shown stronger appetite for the higher risk, higher return tranches of notes from Avatar’s first catastrophe bond transaction, as pricing dropped on the two higher risk tranches.

The Casablanca Re 2017-1 cat bond launched with a $55.15 million tranche of Class A notes, with an expected loss of 0.8% and that were offered to cat bond investors with coupon price guidance of 3.25% to 4%. We’re told that the price guidance has been narrowed at 3.5% to 3.75%, so in the middle of the marketed range.

The middle risk $21.7 million Class B tranche of notes, with an expected loss of 1.77% launched with price guidance in a range from 5% to 6%. The pricing on this tranche has fallen to 5% to 5.5%, so looking set for pricing nearer the lower end of guidance.

Finally, the riskiest $23.15 million Class C tranche, with an expected loss of 9.93%, were offered to investors with price guidance of 16% to 18%. The guidance on this tranche has been narrowed and reduced towards the bottom end, at 16% to 17% we’re told.

Update 2:

Floridian primary insurer Avatar Property and Casualty Insurance Company’s first catastrophe bond issuance has now shrunk slightly before final pricing, with the Casablanca Re Ltd. (Series 2017-1) transaction now set to secure $87.7 million of reinsurance coverage for the firm.

The Casablanca Re 2017-1 Class A tranche of cat bond notes, which launched at $55.15 million in size, is now targeting $60 million of cover for Avatar. This lowest risk tranche, with an expected loss of 0.8%, were initially offered to cat bond investors with coupon price guidance of 3.25% to 4%, which was subsequently narrowed to 3.5% to 3.75%. The guidance has now been fixed at the upper end of the adjusted range, at 3.75% we understand.

The middle risk $21.7 million Class B tranche of notes remains that size. With an expected loss of 1.77%, these notes initially had price guidance in a range from 5% to 6%, which then fell to 5% to 5.5%, and has now been fixed at 5.25%, so towards the lower end of initial guidance.

Finally, the riskiest Class C tranche which launched targeting $23.15 million of reinsurance cover for Avatar has now shrunk right down to $6 million, we’re told. This tranche has an expected loss of 9.93%, were at first offered to investors with price guidance of 16% to 18%., which was then narrowed and reduced towards the bottom end, at 16% to 17%. The pricing has now been fixed at the low-end of initial guidance at 16%, we hear.

Update 3:

At final pricing the deal’s size has jumped back up to $100 million, we understand, as all three tranches increased in size to support Avatar’s need for Florida named storm reinsurance protection.

The Class A tranche of notes, which started as $55.15 million in size, then increased to a $60 million target, is now set to complete at $66.95 million in size, with pricing now fixed at 3.75% which was in the upper half of initial coupon guidance, we understand.

The Class B tranche, which began at $21.7 million in size has now upsized to $26.3 million, with the pricing fixed at 5.25%, which is towards the lower end of initial guidance.

The final Class C tranche, which is the riskiest and began with a target of $23.15 million of reinsurance cover for Avatar, but shrank right down to $6 million, has now increased slightly to $6.75 million at pricing. The coupon for this tranche is fixed at 16%, the bottom of initial guidance.